Special Conditions on Risk Attitudes

Abstract

This paper is concerned with a traditional problem in decision analysis, that of developing simple prescriptive models of preferences between lotteries. A general expected-utility &el is assumed throughout. First, the condition of risk neutrality is shown to belong to a family of conditions, each of which determines the decision maker's utility function. Second, the condition of a constant risk attitude is shown to belong to an analogous family of conditions, each of which determines the decision maker's utility function except for a single parameter. Assumptions of the utility function's differentiability, and often of its continuity, are not needed in these models. Two contrasting methods are discussed by which the models can be used in applications. Subject classification: